NEW YORK/LONDON April 23 (Reuters) – The U.S. manufacturing sector expanded in April and the euro zone private sector started the second quarter on its strongest footing since 2011, while the pace of decline in Chinese factory activity slowed, surveys showed on Wednesday.

Factory activity continued to expand in the world’s largest economy, but the pace of growth stalled and came in below expectations. However, output growth hit its fastest in three years.

Financial data firm Markit said its preliminary or “flash” U.S. Manufacturing Purchasing Managers Index dipped to 55.4 in April from 55.5 in March. Economists polled by Reuters expected a reading of 56.0.

“The headline number is not bad. It’s still above the 50 neutral threshold. The improvement is encouraging,” said Ryan Sweet, senior economist with Moody’s Analytics in West Chester, Pennsylvania.

“With this report, it suggests the manufacturing is gaining more orders and has bounced back from the bad winter weather. Manufacturers are playing catching up.”

The data highlights expectations for a strong second quarter after the first one saw colder-than-average temperatures and massive snowstorms weigh on U.S. economic activity.

Earlier on Wednesday, data showed China’s HSBC/Markit flash PMI for April rose to 48.3 from March’s final reading of 48.0, but was still below the 50 line separating expansion from contraction.

“It’s generally in line (with expectations), reflecting that growth momentum is stabilizing,” said Zhou Hao, China economist at ANZ in Shanghai.

Analysts see initial signs of stabilization in the world’s second-largest economy due to the government’s targeted measures to underpin growth, but believe more policy support may be needed as structural reforms put additional pressures on activity.

“The long slide in China that we have seen in recent months might have turned a corner,” said Peter Dixon at Commerzbank.

EURO ZONE SURPRISES

Growth in the euro zone was again led by Germany, the bloc’s largest economy, where the PMI jumped from March and was just shy of February’s 32-month high.

“Given the problems the euro zone faces, to get even a modest rate of positive growth this year is a good sign. But there is an increasing concern that two of the larger economies – Italy and France – are struggling to gain any traction,” Commerzbank’s Dixon said.

Topping expectations of all 36 economists polled by Reuters, the bloc’s dominant services industry led the charge while manufacturers also had a stronger month than the median forecast had suggested.

But worryingly for policymakers, who have struggled to bring inflation up to their 2 percent target ceiling, service firms cut prices for the 29th month in a row, and did so at a steeper pace than in March.

Inflation fell to just 0.5 percent in March, its sixth straight month in what European Central Bank President Mario Draghi has called a “danger zone” below 1 percent.

Still, the strong data gave support to the euro, which was up 0.28 percent against the U.S. dollar.

“Today’s figure buys the ECB a bit more time. With the recovery still on track there doesn’t seem to be an urgent need for strong action, though deflationary pressures still warrant attention,” Peter Vanden Houte at ING said.

Markit’s flash composite PMI, widely regarded as a good gauge of growth, jumped to 54.0 in April from March’s 53.1, above the 50 mark for the 10th month and chalking up its highest reading since May 2011. A Reuters poll had predicted no change.

Aside from Germany the rest of the bloc also performed well apart from France, where although the index held above 50 for the second month running it was down from the previous reading. The French PMI has been below the wider euro zone reading for 20 months. (Additional reporting by Richard Leong in New York; Editing by Meredith Mazzilli)

The government says that roughly two-thirds of small businesses in America — and their employees — will see an increase in health-insurance premiums under Obamacare.

A report from the Centers for Medicare and Medicaid Services looked at the new rules facing insurers under the Affordable Care Act, namely the inability to charge premiums based on factors like the health of their employees. Small businesses have always seen a high variability in premiums because of worker health. Since they don’t have many employees, just one worker who is ill can raise premiums for the whole organization.

However, most small businesses employ young, healthy workers — people who wouldn’t otherwise be charged high premiums for insurance. Under Obamacare, however, the good health of employees will not be a factor in setting rates, so the majority of small businesses will see premiums go up. The government estimates that 65 percent of small businesses will see rates rise.

What’s more, since most small businesses make their workers contribute to their own health coverage in some way, as many as 11 million individuals could see their own premiums rise, too.

It is unclear how much the rates will go up. The report makes no mention of the magnitude of any increases, either for small businesses or for their employees. However, the White House has consistently argued that Obamacare would lower rates for small businesses by 4 percent, not raise it for the vast majority of small companies.

The Centers for Medicare and Medicaid Services report notes the numbers may not pan out, though — primarily because some companies may decide to drop health insurance altogether. That would force the employees into individual health exchanges. “There is a rather large degree of uncertainty associated with this estimate,” the report notes.

LAISSEZ LES BONS TEMPS ROULER: We’re a week away from Mardi Gras, but the budget season is blooming here in Washington. And, as usual, the Pentagon is the first out of the gate, briefing the press and Congress a week early on its fiscal 2015 budget proposal.

There was lots of news out of the Pentagon yesterday — much of it expected, thanks to a steady stream of leaks and trial balloons. But, still, there were some surprises.

James Hasik, a defense industry consultant and senior fellow at the Atlantic Council, said he was surprised that Army end-strength fared as well as it did. Defense Secretary Chuck Hagel said the active-duty Army would drop between 440,000 and 450,000 soldiers, though it had been widely speculated, even in the last few days, the Army would be forced to go to 420,000. But Hagel said yesterday this would only be necessary if sequestration remains in effect in 2016 and beyond.

GOVERNORS ARE NOT HAPPY ABOUT THE GUARD PROPOSALS: Word has it that all 50 governors signed a letter to President Barack Obama yesterday, voicing their opposition to cutting the Army Guard and transferring their Apache helicopters to active-duty units in exchange for a smaller number of Black Hawk helicopters.

At the Pentagon, though, DoD officials defended the moves, saying they’re only fair when the active-duty Army is taking an even bigger cut.

GETTING IT RIGHT ABOUT WWII AND ARMY END-STRENGTH: “”Where many reporters, editors and bloggers are making their mistake is in their assumption that a drawdown to the lowest numbers since the pre-WW2 numbers equates to a drawdown to the pre-WW2 level, and that’s simply not true,” writes Alexander Nicholson, editor of the Defense Policy Journal. “In 1940, the Army’s troops levels stood at 267,000 … But even in the Pentagon’s proposed new troop strength level for the Army, the numbers are still nearly double the pre-WW2 level.” http://goo.gl/RJzmqL

WIN, LOSE OR DRAW: POLITICO’s Austin Wright and Leigh Munsil highlight yesterday’s losers and winners, plus a handful of draws, a category in which they placed the Army and the National Guard. http://politico.pro/1chZm4Q

On their winners list: Special Ops, Global Hawk, Readiness and Cyber.

ON THE LOSERS LIST — THE LITTORAL COMBAT SHIP, via POLITICO’s Philip Ewing: “The Pentagon’s fiscal 2015 budget submission calls for ending the Littoral Combat Ship program after 32 vessels, short of the previous plan for 52, the defense secretary said. The ships can’t protect themselves in some of the environments commanders need them to operate, he said. Instead, the Navy needs something bigger and tougher.” http://politico.pro/MWg6bQ

THE ORWELLIAN “OPPORTUNITY, GROWTH AND SECURITY FUND”: There weren’t too many new details about what the extra $26 billion would buy. And we didn’t learn much about how it would be paid for. Because it’s a government-wide initiative, Pentagon officials seemed wary of weighing into the offsets discussion, preferring to leave it to the White House to explain.

What we do know is the Pentagon will use the $26 billion to buy back near-term readiness, which senior defense officials said yesterday remains one of the most critical risk factors.

But some people are disappointed by the $26-billion request, saying it throws budget discipline out the window. “It’s time to stay within the budget that has been set,” said the Atlantic Council’s Barry Pavel (@BarryPavel) in a call with reporters.

WHAT WOULD YOU ASK IF YOU COULD ASK HAGEL AND DEMPSEY ANYTHING: In a week, we’ll learn the nitty-gritty details about the budget when the White House officially submits it to Congress. Then, Hagel and Joint Chiefs Chairman Gen. Dempsey will begin making the rounds, taking questions on the budget from members of all four congressional defense committees.

What would you ask them? Email or tweet your questions. #AskHagel

— THE No. 1 QUESTION YESTERDAY: WHAT MAKES YOU THINK YOU’LL GET ANY OF THIS THROUGH CONGRESS? Huge battles await Pentagon officials when they head to Capitol Hill to testify. Whether it’s the force structure cuts, the Army-Guard helicopter “swap,” another round of BRAC, or cuts to military pay and benefits — lawmakers on both sides of the political aisle will use these issues as an excuse to huff and puff and blow DoD’s house down. And some may genuinely care about what’s at stake too. But with it being an election year, the theatrics will be Oscar-worthy.

Senior defense officials said yesterday that there was some indication that lawmakers were beginning to understand the tradeoffs in the budget.

BUT BEFORE THE DAY WAS DONE, CONGRESS SAID: NOT SO FAST, via POLITICO’s Austin Wright: Sen. Jim Inhofe of Oklahoma, the top Republican on the Senate Armed Services Committee, and “other members of Congress railed against the cutbacks in Hagel’s spending plan as they returned from a long Presidents Day recess. They decried base closures, the retirement of the Air Force’s fleet of A-10 ‘Warthogs’ and even the topline budget numbers they themselves mandated.” http://politico.pro/1o1SLRl

AND VETS GROUPS ALSO PROTESTED: “Here we go again. Washington is trying to balance the budget on the backs of those who have sacrificed the most,” said Paul Rieckhoff, founder of Iraq and Afghanistan Veterans of America. “We know the Defense Department must make difficult budget decisions, but these cuts would hit servicemembers, making it harder for them and their families to make ends meet.” http://goo.gl/xZ448C

— PUSHBACK AGAINST THE PUSHBACK: “”Much of the criticism from members of Congress is just the same as its always been — protect your own backyard — nothing new there,” a senior defense official emailed Morning D. “But the fact is, so long as Congress keeps voting for sequestration level spending we’re going to have to get smaller. And the sooner everyone accepts that the sooner the military can build a stronger force for the future.”

TODAY, HAGEL DELIVERS BUDGET MESSAGE TO TROOPS: Hagel is headed to Fort Eustis, Va., to speak with soldiers at Army Training and Doctrine Command, and he’ll address airmen at Air Combat Command located at Langley Air Force Base. Then he’s off to Brussels where he’ll discuss Afghanistan at the NATO Defense Ministers Conference.

Meanwhile, acting Deputy Defense Secretary Christine Fox is headlining a slew of senior DOD officials participating in the annual McAleese defense forum today at the Newseum. The appearance by senior Pentagon leadership marks the first industry engagement following Hagel’s preview of the budget yesterday.

**A message from POWERJobs: Jobs on our radar this week: Senior Director, China at U.S. Chamber of Commerce, Asset Management Consultant at Accenture and IT Strategy Senior Consultant at Deloitte. Interested? Apply to these jobs and more at www.POWERJobs.com; finally, a career site made for YOU!**

SEXUAL ASSAULT VOTE STALLED IN THE SENATE, via POLITICO’s Darren Samuelsohn: “Sens. Kirsten Gillibrand and Claire McCaskill were thwarted again Monday in their bids for floor votes on legislation to shake up how the Pentagon deals with sexual assault.”

MCKEON: HOUSE ON TRACK TO FINISH NDAA IN JUNE House Armed Services Committee Chairman Buck McKeon (R-Calif.) says the House is on a timeline to pass the annual National Defense Authorization Act in early June. And it’s his hope, he said, for a smoother path this year through the Senate.

Still, McKeon worries the bill could get stuck in the muck of election year politics. “If that happens this year, think of this scenario. Everybody goes home to campaign — not me — everybody that’s running for re-election goes home Oct. 1 to campaign,” McKeon said. “They come back after the election, and here’s what happens. Let’s just assume Republicans win the Senate. What is the incentive to finish up anything?”

“My No. 1 priority is to get the bill done. And if we don’t get it done by the time they leave in October, it’s going to be very very difficult,” he added.

SPEED READ

— A provocative headline on the Pentagon budget proposal in the Military Times papers — “Budget Targets Troops.” http://goo.gl/RMLMY0

— Pakistani jets continue to bomb what are believed to be militant hideouts in the northwest tribal area. The New York Times: http://nyti.ms/1hNOJyB

— South Korea says a North Korean warship strayed into South Korean waters late Monday. The Wall Street Journal: http://on.wsj.com/1c3Dr77

— Iran has signed a deal to sell Iraq weapons worth $195 million, a move that would break a U.N. embargo on weapons sales by Tehran. Reuters: http://reut.rs/1c1cnoS

— President Obama has reportedly rejected several potential cyberattack proposals against the Syrian military, which some in the administration say could offer a way to intervene without troops or severe costs. The New York Times: http://nyti.ms/NsPBdY

— The military is stepping up its effort to catch serial offenders within the ranks, as officials increasingly believe that relatively few people are responsible for the bulk of sex crimes. The Christian Science Monitor: http://goo.gl/4IppNC

— Rep. Duncan Hunter (R-Calif.) and the family of Sgt. Rafael Peralta are criticizing The Washington Post for what they describe as gross inaccuracies in a recent article about the Marine’s death. POLITICO: http://politi.co/1hKDEdm

Aaron Salzberg speaks with RFA during an interview in Washington, Dec. 20, 2013.

China should join an intergovernmental commission supervising development of the Mekong River to more effectively address environmental and other problems faced by downstream Southeast Asian nations, a senior U.S. government official says.

Aaron Salzberg, special coordinator for water issues at the U.S. State Department, also underlined the importance of political will in ensuring that the Mekong River Commission (MRC) functions as an effective forum in coordinating shared use of the region’s main waterway.

“In the long run, I think it would be good for China to become a full active member in the MRC … sharing data so that the downstream countries actually understand what’s going to happen and when it’s going to happen and they can prepare accordingly for those types of things,” Salzberg told RFA.

“China can play an active role in managing their infrastructure for downstream benefits,” he said.

Five dams commissioned in China on the Mekong river’s upper portion have caused rapid changes in water levels and other adverse effects downstream, especially in the four countries of the Lower Mekong Basin—Vietnam, Cambodia, Thailand, and Laos—where tens of millions of people depend on the river for food, water, and transportation, environmentalists say.

China has refused to join the MRC—which comprises the four lower Mekong nations and manages development along the Mekong—although the river’s source is located within the Asian giant’s borders, saying it prefers to negotiate on a bilateral basis to resolve any problems on the issue.

Salzberg said that Beijing should join the MRC and provide greater transparency on how its management of the resource might affect its neighbors.

“[H]ow you manage those systems and those dams—how you release water, when do you release the water –if that’s coordinated with the downstream countries, the benefits could be much greater than if it was done absent of knowing what the downstream countries were doing.”

Salzberg said that China’s management of the Mekong headwaters also affects the critical flow of sediment along the river.

“Without that dirt, the delta down at the far end [in Vietnam] doesn’t get replenished and the farmlands don’t get replenished, the nutrients are lost for the fish populations, and you can imagine with climate change happening the subsidence of the delta is greatly enhanced,” he said.

“So how you manage that and trap that sediment flow is critically important … The development upstream in China could have a profound impact on the sediment flows downstream, in addition to the water flows, so we’d love to see them become an active member in this process.”

Strategic grip

China has built dozens of hydropower dams across its rivers, many of which—like the Mekong River—run from sources on the Tibetan plateau to Asian neighbors downstream.

Yet, the world’s most populous nation does not have a single water-sharing treaty in place with any of its neighboring countries, and experts say Beijing has refused to be tied up by a regional regulatory framework because it fears it will lose its strategic grip on transboundary river flows.

China has often been criticized by environmental groups for building massive dams without considering the interests of its downstream neighbors, which is then replicated in areas like the Mekong River basin, where Laos is proceeding with a megadam upstream from Thailand, Cambodia and Vietnam.

The MRC ruled last year that the Xayaburi dam required further study, but the body’s recommendations are nonbinding and Laos has decided to proceed with the project.

Salzberg acknowledged that it is a challenge to convince upstream countries to join regional bodies that might regulate their usage of regional water sources.

“From their perspective, why should they be making sacrifices for the benefit of the downstream countries?” he asked.

“And, unless there are really strong economic ties between those countries or broader geopolitical context that suggests a strong relationship between these countries, it’s often very, very difficult to do that … The incentives can be very modest.”

But he stressed that China should view itself as part of the greater region.

“It’s always hard when you are trying to balance your country’s national interests either for energy or for food or for anything else … with the interests of [your] neighbors. These are always real challenges and tensions that we have to manage everywhere,” he said.

“I think it’s a healthy thing to have disagreement and to have conflict. That is often what drives innovation and can drive cooperation … As a lot of these issues are coming to the forefront—and some of them are contentious—that is going to drive a new spirit of cooperation within the region.”

Political will

Salzberg said that even regional bodies like the MRC, the rulings of which are nonbinding to its members, can be effective channels of cooperation, provided participants have “the political will” to work together.

“[I]f the countries are committed to making that structure work—really using it as a platform to develop the best science, house the best data, put forward recommendations on how the basin can be developed and managed for the benefit of all the people—then I think it really can become an institution that helps drive decision making and cooperation within the basin,” he said.

“If the countries aren’t interested and the political will isn’t there, then … I’m not sure that the institution will ever realize its full potential.”

He said that the MRC has compiled a wealth of resources and experience that should be used for the benefit of not only the countries, but also the people of the Mekong basin.

“How we make that work … the countries are really going to have to have political commitment to doing that.”

He cautioned that outside observers must remain sensitive to the idea that political discourse between countries in Southeast Asia is “fundamentally different” from what nations might have in other regions of the world.

“Different groups work in different ways,” he said.

“Maybe we haven’t found the sweet spot yet for what the right arrangement is that allows this region to address these kinds of challenges.”

Mekong issues

Salzberg also warned that limited data about the Mekong would affect plans to develop the region.

“[P]robably the scariest part of all this is that we’re entering into this development phase without really knowing what the baseline river system is,” he said.

“I don’t think we understand enough about how the basin works right now to do some of these projects in a manner that [the global community] would feel comfortable with,” he added, referring to plans countries have decided to push ahead on without adequately addressing the concerns of all stakeholders.

Among those concerns are issues with how changes in river flows associated with such huge projects might affect fish spawning, silt flow, food security, and even cultural traditions.

Other indirect challenges include how climate change may affect the Mekong’s water flow and whether one country might regulate the flow of water into another country to achieve political goals, he said.

“I think the greatest challenge we have right now is just understanding the basin—what lives in there, how it works, and how is it that we can develop it in a way that protects those things that we think are important,” Salzberg said.

“And I think that’s the real issue—to be smart, to think about what we’re doing before we do it, make decisions deliberately and with full stakeholder engagement, and hopefully … we end up with something that provides benefits for 100 to 150 years, in that it doesn’t start creating problems after year 30.”

A fisherman fixes and cleans a “Ly Trap” (a traditional bamboo made trap) in front of the Khone Phapheng falls as his wife watches.

Khone Phapheng, Laos – For generations, Kampei Samneang’s ancestors have walked on a homemade highwire that spans the largest waterfall in Southeast Asia.In their search for enough fish to feed their children, they have been the only family that has ever dared to cross the slippery line over to a small island, just centimetres above the roaring waves.

Here, the fish are plentiful. “My father taught me how to do this; he was a very talented fisherman, and my grandfather showed me how to make the net. Now I am showing my children,” Kampei said, sitting at the edge of the waterfalls before getting on the highwire.

A homemade fishing net is all he can carry with him. Any more weight, Kampei explained, would likely cause him to fall into the vast rapids underneath. “It’s important that I am scared. I have crossed so many times, but if I lose my fear, I will fall and die,” said the 50-year-old man, clad in yellow rubber flip-flops.

Other fishermen don’t dare to cross and stay closer to the riverbank instead. They admire him for his bravery, Kampei said. “There are many fishermen here, so I have to go to the islands in the middle of the waterfalls to catch enough.”

Diversity hotspot

Soon, however, the construction of the 30-metre-high, 256-megawatt Don Sahong Dam – scheduled to be completed in 2018 – might leave the fishermen’s nets empty. Scientists and environmentalists say the dam will not only affect fisheries within its vicinity, but also put at risk the integrity of the entire Lower Mainstream Mekong River.

It will be better because the dam will make it possible for more fish to swim up and down, and that has been proven by our consultants and experts.

– Yeong Chee Neng, director of the Don Sahong project

Worldwide, the Mekong River ranks second in fish diversity after the Amazon, with more than 1,000 new plant and fish species discovered in the past decade, according to the World Fish Center. About 60 million people in Thailand, Laos, Vietnam and Cambodia are dependent on the Mekong for their livelihoods, according to the World Wildlife Fund.

“The Don Sahong [Dam] … will block migratory fish, which is 70 percent of Mekong fish, from swimming upstream and down on the only channel that allows the fish to reach the upper part of the Mekong,” said Ame Trandem, the Southeast Asia programme director at advocacy group International Rivers.

She said the dam, which will require 95,000 truckloads of riverbed to be removed, will devastate the region’s fish and dolphins, the tourism industry, and the hundreds of thousands of fishermen whose livelihoods depend on the Mekong .

Fish migration

Chhit Sam Ath, executive director of NGO Forum Cambodia, has advocated against building the Don Sahong and other dams planned on the Lower Mekong.

“If the Don Sahong is built, it will have a huge, negative impact on the fish of the Lower Mekong Basin. We expect a huge difference for the fish migration and the number of fish, because the flow of the river will be blocked,” he said.

Mega First Corporation Berhad, the Malaysian company in charge of building the dam, has dismissed these concerns, saying there are other channels the fish can use to migrate. Yeong Chee Neng, director of the Don Sahong project, said the dam would improve local livelihoods and fisheries, as shown by an environmental impact assessment that he said he could not share with the public.

“It will be better because the dam will make it possible for more fish to swim up and down, and that has been proven by our consultants and experts,” Chee Neng said. He explained that traditional fish traps will be banned, and that a new fish passage will be built to allow them to bypass the dam.

However, scientists and fisheries experts are concerned over what they say is lack of evidence that fish would migrate through new channels. In an open letter penned in 2007, 34 scientists from universities around the globe warned the damage from building the dam would “far exceed the net returns from the project”, and that it was not in the best interest of the region’s people.

The extinction of the sensitive Irrawaddy dolphin as well as the critically endangered Giant Mekong Catfish are almost certain, Trandem said – and the Khone Phaphen Falls, now one of the region’s major tourist attractions, would likely be left with less water.

Although the $3.8m Xayaburi dam in upper Laos, which is already under construction and will produce 1,285 megawatts, is much bigger, the Don Sahong will cause more damage because of its location at a critical point for fish migration, Trandem said.

‘A lot of money’

Other possibilities for the dam have not been explored, said Ian Baird, an assistant professor of geography at the University of Wisconsin-Madison, who helped coordinate the scientists’ open letter and has researched the Don Sahong extensively. He said the dam was sited on the Hou Sahong channel because when the project was first planned in the 1990s, researchers were still unaware of the channel’s vital role for the ecosystem.

Fishermen in Laos are worried about their livelihoods [EPA]

“Once the Malaysian company had invested a lot of money in investigating the project and preparing engineering designs, they learned during the [environmental impact assessment] that the channel was vital for fish migrations.”But by then [they] didn’t want to change their plans, since they had already invested a lot of money,” Baird said.

Chee Neng said Mega First had been working on the plans for the dam for more than eight years, and he did not understand critics’ complaints.

“If we wouldn’t know what we are doing, we wouldn’t do it. We wouldn’t do anything that is not good for the people. I am a God-fearing person, and I have to answer to my God as well,” he said.

As for fishermen such as Kampei, who have lived on their traditional fishing methods for generations, they were unaware of the possible danger to their livelihoods that the dam could bring.

Despite the threat from the dam, Kampei said he expects his children will follow in his footsteps. “If I don’t teach my sons how to fish, how will they be able to support for their families?”